president and founder @rich larson watermark learning ... proof... · making technology investments...

Enhanced Performance. Enduring Results.1

Richard Larson, PMP, CBAP, PMI-PBAPresident and FounderWatermark Learning

@Rich_Larson

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Enhanced Performance. Enduring Results.©

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Describe the essential components of an effective business case.

Plan and create bullet-proof business cases. Avoid common pitfalls when recommending or

justifying projects.

After this presentation you will be able to:


The Need for Effective Business Cases 1

Five Critical Things to Include2

Pitfalls to Avoid3


General Challenge: “Projects not Meeting Business Needs”

Projects justified by solution

Unclear scope

Inappropriate approaches

Scrapping of projects


The wrong way to justify projects


“For starters, market research shows that over 50 percent of funded IT projects still use no formal ROI governance at all.

“The vast majority of business cases are seriously defective.

“Ironically, most companies scrutinize $50 expense reports closer than the reasoning behind a $100,000 IT investment.”

Source: Making Technology Investments Profitable: ROI Road Map From Business Case toValue Realization, 2nd ed. by Jack M. Keen

Why does this happen?

“Ironically, most companies scrutinize $50 expense reports closer than the reasoning behind a $100,000 IT investment.”

“The vast majority of business cases are seriously defective.”

“For starters, market research shows that over 50 percent of funded IT projects still use no formal ROI governance at all.”


DISCUSSION:What is missing from Business Cases

in your organization?

Discussion


Formal Definition:

“A document written for executive decision makers, assessing the present and future business value and risks related to a current … investment opportunity.”

Source: Jack Keen book


DISCUSSION: Who should own a Business Case?

Discussion

a. Business Analystb. PMOc. Project Managerd. Product Ownere. Sponsorf. Other


R A C IPreparer/“Advisor”

Executive(s) deciding on

projects

SMEs,External

organisations

Interested Parties (e.g., Project

Manager or other team members)

Roles and Responsibilities

Who Produces/Uses a Business Case?

R A C I


“Advisor”“Business”


Situation = Business Need/Rationale Includes both Problems and Opportunities Tip: Get Agreed-On Situation/Business Need

before recommending anything Situation Statement

• Problem (or opportunity) of “a”• Has the Effect of “b” • With the Impact of “c”


Mortgage applications require on average 45 days to process, delaying their approval and final closing at an estimated cost of $100 per closed loan. Delays also cause 5% of loans to be abandoned, losing $10,000 revenue per loan, or $1.2 million per year.


Exercise: Which are valid Situation Statements?

In order to process more records, we need to upgrade our database from Access to Oracle. No; this is a solution

No; what are these?

Yes; Problem > Effect > Impact

Our current development platform, Cold Fusion, has limited ability to add enhancements, resulting in delays of new releases which cost us $100,000 per year.

Automating our registration system will reduce staff needed to process registrations, saving us $50,000 per year. Customers will also be happier because their registrations will be processed quicker.


A bullet-proof business case solves the right problem

Use techniques like these to help you find and document the root causes

• Five “Whys” • Pareto Charts• Fishbone

Diagrams• Inter-relationship

Diagrams• Mind Maps • Scatter Diagrams• Process Diagrams


What is in a Solution Recommendation?• The deliverables that must be produced to address

the business need

• Needed enablers due to dependencies

• Impact on organization units and systems

• Risks, Assumptions, and Constraints


Root cause analysis Solution Also need:

• Alternatives considered

• Feasibility Analysis

• Cost-Benefit Analysis

Situation

Solution


Feasibility Analysis• Determine “Feasible Approach”

• Preliminary cost-benefit analysis

• Often generates multiple approaches

• End-results should be rank-ordered


Factors for Feasible Solutions (TELOS*)

* Adapted from Wikipedia listing for Feasibility Study

Factor Questions to AskTechnology Feasibility Is the solution technically

feasible? Will it integrate into what we have today?

Economic Feasibility Does the solution seem affordable? Is it cost-justified enough for further study?

Legal Feasibility Are we violating any laws withthe solution? Is it ethical?

Operational Feasibility How well does the solution solve the problem? How well does it match requirements?

Schedule Feasibility Will the solution accomplish what we need when we need it?


Benefit Identification • Tangible benefits – increase in sales or

decrease in costs• Intangible benefits – improved customer

satisfaction, heightened employee morale

Cost Identification• Easier to determine than benefits• Tip: “A business case team should spend no more

than one-fourth of its cost and benefit research and analysis time on cost issues.”*

* From: Jack Keen book


Cost-Benefit Analysis• Involves various financial tools to analyze

outcomes, uncertainty, and tradeoffs

• Possible Financial tools:

o Pay Back Period Internal Rate of Returno Return on Investment Average Rate of Returno Weighted Average Cost of

Capital Discounted Cash Flow Net Present Value


Financial Tools - BasicTool also known as

Description Example

Pay Back PeriodBreak-Even Point

Time needed to recover an investment, usually in months or years

Return on InvestmentROI, ROR, Average Rate of Return

Average of all net benefits divided by initial project cost

23.2%Average of 3 years projected net benefits ($324,000) divided by $1,250,000 initial cost

Year 0 Year 1 Year 2

Cost

Benefits

Time

Break-Even Point

(1.64 Years)


Financial Tools - ComplexTool also known as

Description Example

Internal Rate of ReturnIRR, ROR

Hypothetical annual yield of an investment. IRR is the projected rate of growth a given project is expected to bring.

The IRR of a proposed project is 45% and current interest rates are at 5%, so the project would be a good investment.

Excel can calculate this.

Net Present ValueNPV

The value of a dollar today compared to the value of that same dollar in the future, taking inflation and returns into account.

$944,655, which means it is a great investment.

Excel can calculate this.

See www.investopedia.com/terms


Speedy Mortgage. Inc.Procurement Analysis Worksheet - Sample

Supporting Numbers for Financial Tools


Plan Implementation Approach

High-level approach to obtaining the capabilities recommended

Implementation approach project plan

• Buy vs. Build • Assumptions• Costs • Constraints• Risks Phases/Iterations


Measuring Benefits after solution delivery, such as:

• Costs saved• Costs avoided• Revenues increased• Market share gains• Increased customer satisfaction

Tip: Recommend measures and methods to collect them in business case

Measure and report benefits post-implementation

Benefits


“Business” “Advisor”

• Situation Statement

• Data for Analysis• Root-Cause

Analysis

• Deliverables• Gap Analysis• Cost-Benefit Analysis• Risks & Assumptions

• Project Selected

• Project Charter

• Project Plan

• Metrics for evaluation


1. Leading with a solution - Treat every business case as a project focused on needs and remember the consultant's favorite question: “What business problem are we solving?”

2. Order-Taking a solution request - Nail the situation statement before attempting to analyze its causes or drivers

3. Omitting key stakeholders –Do your stakeholder analysis to ensure critical views are represented

Avoid:


4. The “Feature Fallacy” – Focus on and stress business benefits more than features

5. Omitting cost-justification- For Costs, focus on the top 5- For Benefits, assume the audience wants mostly tangible benefits, but will listen to intangibles

6. Leaving out total cost of ownership - Be sure to include it in your annual costs

7. Owning the solution or decision – You may create a business case, but the business owns it

Avoid:


8. Presenting only one solution and no alternatives –Rank-order them

9. Information overload - Assume the audience is impatient, and provide executive summaries up front, details in an Appendix

10. Ignoring the fear of change –embrace stakeholders’ hearts –not just their minds - to overcome it*

Avoid:

* See HBR article for more on this


Describe the essential components of an effective business case.

Plan and create bullet-proof business cases.

Avoid common pitfalls when recommending or justifying projects.

Now that we’re done, you should be able to:


Curious about On-Site Delivery?• We can tailor and personalize courses

to meet your needs• Delivered either on-site or virtually

(live online)

Free Resources to Continue your Learning:

• Articles• Webinars On-Demand• Templates• Bibliographies• Linked-In, Facebook, and Twitter Groups

@watermarklearn

Recommended Courses & Resources for a Deeper Dive• Bulletproof Business Cases

• Consulting Skills to Solve Business Problems

• Influencing Without Authority

For more information please contact: [email protected]

watermarklearning.com/resources/

http://www.linkedin.com/groups?gid=76122&trk=vsrp_groups_res_name&trkInfo=VSRPsearchId:450798811372696800644,VSRPtargetId:76122,VSRPcmpt:primary

http://www.twitter.com/watermarklearn

http://www.facebook.com/home.php?#/pages/Edina-MN/Watermark-Learning/257987821295?ref=nf

http://www.watermarklearning.com/Resources


Books:

Making Technology Investments Profitable: ROI Road Map from Business Case to Value Realization, 2nd ed. 2011 by Jack M. Keen

The Influencing Formula: How to Become a Trusted Advisor and Influence Without Authority by Elizabeth Larson and Richard Larson

Articles: http://www.investopedia.com/terms/http://en.wikipedia.org/wiki/Feasibility_studyhttps://hbr.org/2014/07/the-right-way-to-present-your-business-case

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[email protected]

president and founder @rich larson watermark learning ... proof... · making technology investments...

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